Iraq, OPEC's second-largest producer, said it would raise crude exports from its main Basra port to an all-time high in February. The country's southern oil exports in the first nine days of January held steady near a record high, despite the agreed start of OPEC cuts on Jan. 1, according to a source and loading data.

"The petroleum markets are consolidating at the lower levels reached in Monday trade after doubts emerged over the degree of compliance with OPEC production cuts as Iraqi exports remain high, as well as the more general pace of market rebalancing," Tim Evans, energy futures specialist at Citigroup said in a note.

"Fresh reports that non-OPEC producers Russia and Kazakhstan have reduced output have produced little price reaction, with the failure to rally on bullish news suggesting that the market is overbought and vulnerable to a further downward correction."

Both crude contracts fell more than $2 a barrel, or around 4 percent, on Monday on doubts that the Organization of the Petroleum Exporting Countries (OPEC) and other key oil producers would cut output as promised to try to reduce a global oversupply.

The dollar rose on Tuesday, retracing early losses against a basket of currencies, and pressuring greenback-denominated oil as a stronger dollar tends to discourages buying by consumers holding other currencies.

Higher oil future prices through December encouraged investors to buy large volumes of crude contracts and many of these "long" positions are likely to be unwound unless the market stays strong, analysts and brokers said.

Supplies are also increasing in North America.

The U.S. Energy Information Administration revised its forecast for 2017 U.S. crude output, expecting growth of 110,000 barrels per day compared with last month's forecast of a 80,000 bpd year-over-year decline.

In the United States, energy companies last week added rigs for a 10th week in a row, extending the drilling recovery into an eighth month as crude prices remained at levels at which many U.S. drillers can operate profitably.

The average Canadian rig count for December 2016 was 209, up 36 from the 173 counted in November 2016, and up 49 from the 160 counted in December 2015, said Matt Stanley, a fuel broker at Freight Services International in Dubai.

"A 30 percent increase in Canadian rigs in a year ... The bear in me is well and truly back," Stanley said.

Weekly inventory data from industry group the American Petroleum Institute (API) is scheduled at 4:30 p.m. EST, with analysts forecasting a 1.2 million-barrel build in U.S. crude stocks in the week to Jan. 6.

Adding one-off supplies, the U.S. Department of Energy on Monday announced a sale for crude from its Strategic Petroleum Reserve (SPR), with bids for 8 million barrels of light, sweet oil due by Jan. 17.